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By Rick Pridemore
Mr. Pridemore is currently a REIA board member, and has been a real estate investor since 1989. Over almost 2 decades he has developed vacant land, rented single family dwellings, and built new homes (both site built and modular.) He has also traveled the country conducting training seminars and attending
trade shows. Rick is a licensed real estate agent, specializing in both high end and investment properties.
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I’m an investor. Should I list my property with a Realtor, or sell it by owner?
Selling a home FSBO (For Sale By Owner) might seem like a good idea. What do real estate agents actually DO, anyway? They plant a sign in the front lawn, wait a few weeks (or months, these days) for a buyer to stumble along, and then collect 6%, right? WRONG! That’s what bad real estate agents do, usually minus a sale and the 6%, too. A good real estate agent is essential to getting the most money for your property. Studies show that only 1 in 10 FSBO’s end up selling by owner. Not only that, but numerous studies have shown that homes sold by a realtor sell for an average of 8% more than homes sold by owner, and sell quicker too. As any savvy investor will immediately notice, that’s a 2% profit in your pocket, with less effort. Still not convinced? Consider these points:
- Your reason for not listing with an agent isn’t a secret. The buyer knows that you are selling FSBO to avoid paying a commission, and will normally try to lower the offer price by 3% or more and “split the difference.” How thoughtful of them!
- Unqualified buyers. Many FSBO’s waste countless hours showing their home to unqualified buyers. Many buyers look at homes far above their means. They’re “dreamers.” Real estate agents work on commission, and can’t waste their time dragging dreamers around town. Agents quickly become proficient in "weeding out" the buyers from the dreamers. Therefore, when you list with an agent, you can be sure that they will sort the “gold” from the “gravel” for you.
Here’s are some more reasons to sell with a competent agent:
- A realistic evaluation of your property’s worth. When a property owner tries to evaluate their home’s worth, they must rely on reading descriptions of comparable properties that sold in their area. Unfortunately, this data is often tough to come by, so many homeowners make the mistake of basing their asking price on other currently listed homes. To make matters worse, they usually don’t even take the time to actually visit the competing listings, relying instead on the written descriptions in flyers and ads. This is like the blind leading the blind. In all likelihood, the other listings are overpriced. Since you, like most property owners, believe that your property is at least as good as everyone else’s, you price your home a few thousand higher than the prevailing rate. This gives you room to “negotiate.” Shortly after your home goes up for sale, another homeowner decides to list their home a few thousand higher than yours. Why not? Their home is better than yours, at least in their mind. And so the cycle continues. FSBO after FSBO basing their asking price on other active properties, instead of on the "solds." A good real estate agent, however, visits every new listing in their area. They evaluate its condition, location, style, and compare it to the current market conditions. When a home sells, they analyze how long it took to sell, and what concessions the seller had to make, if any. Thus, good agents know the condition of homes that have already sold, that are currently active, and those that have been withdrawn from the market. They have the complete picture of the market, because they have actually seen the competition. They live, eat, and breathe home selling prices for years. A FSBO, on the other hand, looks at a small snapshot in time when they decide to sell their property.
- Emotional distance. Whether you are selling a home after raising your family in it for the last 20 years, or you are selling a flip that you’ve poured money and sweat equity in for the past few months, it’s difficult to divorce yourself from the emotion of selling a home. A good real estate agent can provide the calm, cool, reason of emotional distance. He or she views the sale of your property as it is, a business transaction. This is essential, especially when negotiating with a “tough” buyer that might bruise a seller's ego. In real estate, a lot of money has been lost due to emotions, and most of it has been lost in FSBO deals.
- Exposure. Real estate agents belong to the multiple listing service (MLS.) The MLS is the holy grail of home sales. Not only does it make doing a comparative market analysis (CMA) a few hour ordeal instead of a multi-day research expedition, but it instantly exposes your property to thousands of agents, that have tens of thousands of home buyers as clients. And these home buyers are serious. A good agent won’t waste their time with “Looky Lous.” A hundred classified ads in the local paper aren’t worth one MLS listing. If you take away only one thing from this article, make this point the one.
- A smooth transaction. No matter what anyone tells you, selling a property is a complicated procedure. Lead based paint disclosures, pre-approval versus pre-qualification, title insurance, escrow, seller disclosures, radon addendums, inspections, tax pro-rations, counter signing, counter offers, clause remedies, contract wording, and formal acceptance are just the tip of the iceberg. It’s enough to make your head spin. And truth be told, I have met more agents than I’d like to admit that are just as confused as a non-agent. And they get away with it as long as everything proceeds according to plan. But one hiccup is all it takes to throw everything into turmoil. A truly professional agent will be able to guide you through any unforeseen situation with a minimum of damage.
- Contracts that are properly written. Real estate contracts are complicated, and one little mistake in wording can cost you thousands, if not the entire deal. While it is always prudent to get the advise of an attorney, especially if you are doing a FSBO, dealing repeatedly with an agent that you trust can take the worry out of the deal. If you use a professional, competent agent you can feel assured that the “t”s are crossed and the “i”s are dotted. If you deal with a real estate agent that tells you that all purchase agreements are the same, or that “they’re all standard, there’s no need to read every line,” or “just skim it, it’s boring,” run. RUN LIKE THE WIND! I can’t tell you how many of my clients profited because the other party's agent was too lazy to actually read the purchase documents. Nothing in a real estate transaction is standard. Everything is negotiable, and any good agent's job is to make sure they word the contract documents in their client's favor.
- Freedom to make more money. You aren’t in the business of selling real estate unless you are a real estate agent. A real estate investor is in the business of investing in real estate. This can be accomplished by rehabbing a home, renting it out while the property appreciates, splitting or improving vacant land, or building new structures. Even home builders realize this point. Pulte is one of the largest home builders in the world, yet they know that their expertise is in home building, not home selling. Therefore, they hire agents to sell their homes, and offer full commission to buyer’s agents. Likewise, you are in the business to flip homes, rent homes, or build homes. Every hour that you spend on an activity related to marketing or showing a property takes time away from your core business. And your core business is what you are an expert at, and what will bring you the greatest financial return for the same effort. For instance, let’s say that you are an auto mechanic that charges $65 an hour. If your furnace breaks down and will cost $200 to repair, should you fix it yourself? Sure, you say. I’ll save $200! But in reality, the correct answer in most cases is no. You can make $200 in 3 hours repairing cars. Your core business is auto repair. It’s what you know best. Assuming that you eventually figure out what’s wrong with the furnace, it will most likely take you much longer than 3 hours (in fact, many of you know that it will probably take all weekend and then end in a call to the heating and cooling expert anyway.) So, stick with your “core” business and leave everything else to the appropriate expert. Time spent on core activities is always more profitable.
The key: find a competent agent that you trust and make him or her an integral part of your investment team. Once the agent knows that they can depend on your business, they will work hard to make you money. Because when you make money, so do they! |
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